‘Value Investing’ pays off for some MFs in churn season

A handful of equity funds have managed to attract investors in the past six months amid a redemption spree. Small and wellheeled investors snooping around for opportunities and those who re-entered the market after panic selling were driven towards these funds that have adhered to ‘value investing’.

Equity funds like SBI Emerging Businesses Fund, Reliance Equity Opportunities Fund, ICICI Pru Discovery Fund and Franklin India Prima Plus Fund are among the few diversified equity funds that have beaten respective benchmarks as well as outperformed their peers.

Many investors, tracking fund performance across categories, sensed the way these funds have picked stocks: spotting distressed valuations and the potential upside. “In times of a slowdown, it is seen that value stocks generate greater return than momentum stocks,” says Mrinal Singh, fund manager at ICICI Prudential AMC.

These are stocks that have been hammered on the back of a host of factors, mostly external, but have the business dynamics to claw back. In the past one year, these funds have generated an average return of 29%. What’s common to all these funds is high exposure to financial services.

This paid off at the first hint that the interest rate cycle was turning: softer rates mean higher treasury profits, lower loan defaults, and lower mark-tomarket losses on bonds whose prices rise with every dip in rates.

Of the five funds, three have a good CNX Nifty index by a wide margin, has its eyes on companies in niche businesses in the consumption sector. Agro Tech Foods, Redington India and Hawkins Cookers are among the stocks in its portfolio.

The fund has a high-risk high-return strategy and primarily picks companies with decent growth but modest valuations. exposure to ICICI Bank, India’s second largest lender. The stock has underperformed its peers in the past few years, thanks to concerns over asset quality.

But, a conservative lending approach over the past two years has improved its asset quality. SBI Emerging Business Fund, which in the past five years has consistently beaten the benchmark